This guidance relates to accounting periods before the
issue by the Accounting Standards Board (ASB) of Urgent Issues Task
Force (UITF) Abstract 40 in March 2005. UITF 40 applies for
accounting periods ending on or after 22 June 2005. Further
guidance is at BIM74200 onwards. See in particular Appendix 2
paragraph 1 in BIM74275 in relation to the ICAEW’s guidance
TAX30/98 (see BIM74130).
Profit cannot be deferred by leaving jobs in work-in-progress
after they have reached a billable stage. Once a job has been
completed the billable amount should normally be recognised as a
debtor rather than work-in-progress. Where a request for payment is
issued under the VAT continuous service rules, the issue of that
request will normally trigger a requirement to regard the amount as
a debtor for accounting purposes.
In the case of income recognition, HMRC accepts that income
need not be recognised for a job that depends on a contingency
until that contingency is satisfied. For example, a lawyer who took
on a case on a 'no win, no fee' basis need not recognise the fee
until the case is won; only then is the condition met which is
necessary to earn the fee. In addition, HMRC accepts that, for this
purpose, it is open to the professional to deal with a large number
of similar contingent fee cases either in the aggregate or to look
at each one separately. Under the former approach it might be
possible to say that a certain percentage will yield a fee and to
recognise income accordingly. Under the latter approach there is no
certainty that any particular case will yield a fee and so no
income need be recognised for any of them until the contingency is
satisfied in each case.
There is nothing special about valuing debtors of a
professional practice: normal practice should be applied. It is as
permissible to provide against bad and doubtful debts as in any
other business.
